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The problem isn't that management is supposed to look out for the interests of the stockholders, it is that the stockholders no longer are willing to wait for their gains.

A company which plots a course of slow steady growth through infrastructure investing, R&D and other long-range efforts, will find itself hammered by Wall Street. This will lead to complaints about the management, and in many cases their replacement by those more willing to play Wall Street's game.

What Wall Street (that means us though mutual funds and retirement accounts) wants is 8-12% growth per year. We also want to see the rate of growth increase each year. A company like Coca Cola which grows at (perhaps) 2% per year due to expanding markets (that is more people) is held in low regard. This used be the type of company that was recommended to widows and orphans. The stock went up a couple of percent each year and paid a nice dividend of, say, 3-4%.

Every trick in the book is now used to manipulate the firms performance. This includes "off book" entities, shifting operating expenses to special charges, stock buybacks and even outright lying. Such manipulation (and the emergence of financial instruments based solely on gambling such as the QQQ shares of NASDAQ) usually are the prelude to a financial collapse.

The latest wrinkle is for public companies to be taken private by hedge funds and other closed investment firms. What goes on behind closed books remains a mystery. After some time the firms will re-emerge as a new public offering with no review of their business practices.

Just today the NY Times has an article about several firms which have failed to release financial records on time and are still being traded on the NYSE. Only mindless gamblers would buy such a pig in the poke. This shows the terminal stage of greed.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Dec 22nd, 2006 at 12:54:34 PM EST

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